Guv to use stimulus windfall to avoid new state taxes

ALBANY -- Gov. David Paterson said he will use federal stimulus funds to eliminate his proposals to raise taxes and fees covering everyday purchases including music downloads and sugary drinks.

The measures had already faced an uncertain future because of strong opposition by Democrats who control the Legislature. Meanwhile the Senate's Republican minority conference tried to use the proposals to cast Paterson and his party as big taxers.

Eliminated in Wednesday's deal with Democratic legislative leaders were: A return of the sales tax on clothing, and new taxes on music and pornography downloads, haircuts, manicures, movies, concert and theater tickets, health club memberships, bowling, golf and skiing fees, cable and satellite television manufacturers' coupons, and more.

The taxes and fees "really have disturbed a lot of New Yorkers," Paterson said. "I didn't want to do it in the first place."

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The announcement may have been a great press event judging by the number of legislators attending, but it caused more problems than it solved, said Elizabeth Lynam of the independent Citizens Budget Commission. She said that although the so-called nuisance taxes had made headlines, the federal stimulus money could have gone to replace things such as a proposed health insurance tax that could hit New Yorkers harder.

"If the leadership is going to get us through this fiscal crisis, it's not the best use of these funds," she said.

Senate Minority Leader Dean Skelos' Republican conference had pushed to eliminate all tax increases proposed in Paterson's 2009-10 budget released in December. But Skelos doesn't think much of Wednesday's announcement by the Democratic governor who is suffering his lowest poll ratings.

Using $1.3 billion in federal stimulus to avoid the taxes makes a proposed income tax rate increase for households making over $250,000 a year more likely, legislators and lobbyists said. Several similar proposals with strong support among the Democrats who control the Assembly and Senate could bring in billions of dollars. The state's 2009-10 deficit is now projected to be more than $14 billion.

"I don't think there's anyone in Albany that, at the end of the day, thinks we can resolve the budget problem without asking people making over $250,000 to pay their share," said Billy Easton, director of the Alliance for Quality Education, a group that lobbies for more school aid.

The income tax proposals are boosted by strong support in public opinion polls. But an economist testified recently in a legislative hearing that the "fair tax" proposals would cost the state about 22,000 jobs because employers would leave.

Paterson said that in exchange for taking the taxes and fees off the table, he gained no reciprocal deal from Assembly Speaker Sheldon Silver or Senate Majority Leader Malcolm Smith. But Paterson said he has what he feels is greater resolve by the legislative leaders to support his funding cuts to hospitals. Paterson insists the cuts are necessary to avoid another fiscal crisis.

The health care lobbyists weren't shaking.

"There is no rational or responsible reason for the state Legislature to accept any of the health care cuts and taxes the governor has proposed," said Daniel Sisto, president of the Healthcare Association of New York State.

He said it's puzzling that the state would eliminate taxes on soda and hair cuts but leave in a gross receipts tax on hospitals that he claims could close hospitals and force layoffs.

"People can choose not to download iTunes without a negative impact," said New York Health Plan Association President and CEO Paul Macielak . "We don't want them to be forced to choose not to have health insurance."

Paterson said Wednesday he's still opposed to raising the income tax rate on wealthier New Yorkers, but acknowledged that his view isn't shared by fellow Democrats in the Legislature. Paterson also noted the proposal remains on the table, and a tough budget will require serious compromises.